Question

On June 30, 2020, Shamrock Company issued $4,470,000 face value of 14%, 20-year bonds at $5,142,560, a yield of 12%. Shamrock uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest on June 30 and December 31.

Prepare the journal entries to record the following transactions. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(1)		The issuance of the bonds on June 30, 2020.
(2)		The payment of interest and the amortization of the premium on December 31, 2020.
(3)		The payment of interest and the amortization of the premium on June 30, 2021.
(4)		The payment of interest and the amortization of the premium on December 31, 2021.

No.	Date	Account Titles and Explanation	Debit	Credit
(1)	June 30, 2020
(2)	December 31, 2020
(3)	June 30, 2021
(4)	December 31, 2021

  

  

Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 2021, balance sheet. (Round answers to 0 decimal places, e.g. 38,548.)

Shamrock Company Balance Sheet                                                                       December 31, 2021For the Year Ended December 31, 2021For the Quarter Ended December 31, 2021
Current AssetsCurrent LiabilitiesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant and EquipmentStockholders' EquityTotal AssetsTotal Current AssetsTotal Current LiabilitiesTotal Intangible AssetsTotal LiabilitiesTotal Liabilities and Stockholders' EquityTotal Long-term InvestmentsTotal Long-term LiabilitiesTotal Property, Plant and EquipmentTotal Stockholders' Equity
			$
Loss on Redemption of BondsPremium on Bonds PayableBad Debt ExpenseNotes PayableNotes ReceivableCashInterest ExpenseDiscount on Notes PayableBook Value of Bonds PayableInterest Payable			$

  

Provide the answers to the following questions.

(1) What amount of interest expense is reported for 2021? (Round answer to 0 decimal places, e.g. 38,548.)

Interest expense reported for 2021

$

(2) Will the bond interest expense reported in 2021 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?

The bond interest expense reported in 2021 will be                                                                       greater thanless thansame as the amount that would be reported if the straight-line method of amortization were used.

(3) Determine the total cost of borrowing over the life of the bond. (Round answer to 0 decimal places, e.g. 38,548.)

Total cost of borrowing over the life of the bond

$

(4) Will the total bond interest expense for the life of the bond be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used?

The total bond interest expense for the life of the bond will be                                                                       greater thanless thanthe same as the total interest expense if the straight-line method of amortization were used.

Answer 1

Amortization table
	Col I	Col II	Col III	Col IV	Col V
Date	Interest Payment($4,470,000*7%)	Interest expenses(Col V*6%)	Premium amorrtization(Col I -Col II)	Unamortized Premium	Bond carrying amount
30-Jun-20				6,72,560	51,42,560
31-Dec-20	3,12,900	3,08,554	4,346	6,68,214	51,38,214
30-Jun-21	3,12,900	3,08,293	4,607	6,63,606	51,33,606
31-Dec-21	3,12,900	3,08,016	4,884	6,58,723	51,28,723
	Date	Accounts and explanation	Debit(in $)	Credit(in $)
	30-Jun-20	Cash	51,42,560
		Bonds Payable		44,70,000
		Premium on Bond Payable		6,72,560
	31-Dec-20	Interest expenses	3,08,554
		Premium on Bond Payable	4,607
		Cash		3,12,900
	30-Jun-21	Interest expenses	3,08,293
		Premium on Bond Payable	4,607
		Cash		3,12,900
	31-Dec-21	Interest expenses	3,08,016
		Premium on Bond Payable	4,884
		Cash		3,12,900
	SHAMROCK COMPANY
	Balance Sheet(Partial)
	At December 31,2020
	Long-Term Liabilities
	Bonds Payable	$44,70,000
	Unamortized Premium	$6,58,723
	Net Bonds payable as on December 31,2020		$51,28,723